Business Structures

Having the right business structure for your business is one of the most important factors in your business as this could mean increased profits, less tax payable asset protection, being able to sell whole or part of the business and business perpetuity.

Sole Trader

Advantages:

- Low initial costs

- Low reporting requirements

- No Div 7A application

- Simple to run

- Easy to wind up

- Flexibility in decision making

- Full control over business decisions

- Access to CGT discounts

Disadvantages:

- Unlimited liability and no asset protection

- Can be taxed at individual tax rates of up to 46.5%

- No distinction between the business and the owner

- Complex rules for claiming motor vehicle expenses

- No business perpetuity

Partnership

Advantages

- Profits can be distributed to partners

- Low cost to establish and maintain

- Easy to understand

- Flexibility in decision making

- CGT concessions accessible

- New partners can be easily admitted

- No Div 7A applicable and drawings are allowable

Disadvantages:

- Unlimited liability of partners

- No asset protection

- Partners and jointly liable for any actions taken

- No income can be accumulated in the partnership

- No wages can be paid to partners

- Complex rules for car expenses claims

- Common disagreements between partners

Discretionary Trust

Advantages:

- Provides asset protection

- Flexible in profit distribution

- Income can be distributed to a family owned company or charity

- Lower reporting requirements

- No ASIC registrations, lodgments and fee payments

- Can access CGT concessions

- Easier to set up and wind up than a company structure

- Trustee can be changed easily and control maintained

Disadvantages:

- Hard to understand the concept of 'trust'

- Cost more than partnership to setup and maintain

- No losses distribution

- Limited perpetuity (generally up to 80 yrs)

- Can distribute to family members only if family election

- Additional stamp duties and land tax can apply

- No profits can be accumulated in trust (taxed at highest rate)

- More complex tax rules than sole traders and partnerships

Company

Advantages:

- Ultimate business structure for growing businesses

- Flat tax rate of 30%

- Easy to sell shares and transfer ownership

- Can integrate in the tax system and pay dividends to shareholders

- Separate legal entity

- Asset protection

- Perpetual existence

- Easy rules for claiming motor vehicle expenses

- Can easily obtain finance

- Easier concept to understand than trust

- Can pay wages to owners unlike the partnerships

Disadvantages:

- Costly to set up and wind up

- Complex to maintain and administer

- Reporting to ASIC and yearly fee payments

- Div 7A will apply for any drawings from company and any profits will be taxed two times

- Fixed interest in profit distribution

- PSI can apply for some professions e.g. medical practitioners, lawyers and accountants

Self Managed Super Fund

Advantages:

- 15% flat tax rate

- All members are trustees and can maintain control over funds

- Can provide control over funds

- Ultimate asset protection

Disadvantages:

- Cannot have business activity

- The most complex rules

- Costly to setup and administer

- Can be time consuming to manage

- Not recommended if funds insufficient e.g. generally not recommended if funds under 200k